By Ren Xingzhou, Institute of Market Economy of DRC

Research Report No. 130, 2007

I. The Overall Economic Performance in the First Half of 2007

1. Salient features of the economic performance in the first half of 2007

(1) The economy continued to grow rapidly and the GDP growth stood at 11.5%

In the first half of 2007，the national economy continued to maintain a rapid growth with a total GDP of 10676.8 billion yuan，a year-on-year increase of 11.5%，accelerating by 0.5 percentage points（Figure 1）. The industrial enterprises above designated size fulfilled a year-on-year profit increase of 42.1%，accelerating by 16.6 percentage points. The summer grain crops saw a yield increase in the fourth consecutive year，with an output of 115 million tons，including an increase of 1.46 million tons，up by 1.3%，and the yield per unit area went up by 1.1%.

Figure 1 The Year-on-year GDP Growth Rates in Different Quarters during the First Halves of 2004～2007 ( % )

Source：State Statistics Bureau

(2) Growth of fixed asset investment declined and positive changes took place in investment structure

In the first half of 2007，fixed asset investment of the whole society amounted to 5416.8 billion yuan，surging 25.9%, year on year, with the growth rate falling back 3.9 percentage points from the same period of last year. The investment structure showed still further positive changes. Investment in the primary industry grew 37.5%, year on year；while investment in the secondary industry mounted up 29.0%. Growth of the energy-consuming ferrous metal smelting and calendaring process industry saw some decline. Investment in the tertiary industry increased 24.6%. Of this, investment in communications, transportation and warehousing as well as in postal service, water conservancy and management of public facilities grew fast，up 19.6% and 18.4% respectively. In the first half of 2007, investment in central and western regions grew 35.6% and 30.2% year on year respectively, all faster than the growth rate of 22.3% in the eastern region.

(3) Growth of incomes of the urban and rural residents accelerated and the consumption demand realized a maximum growth

In the first half of 2007，the aggregate retail volume of the social consumer goods amounted to 4200 billion yuan，up 15.4%，year on year, accelerating 2.1 percentage points from the same period of last year，which hit an all-time high since 1997. Of this total，the retail volume of the urban consumer goods grew 15.9%；and the retail volume in counties and in areas under the county level grew 14.3%. Contribution of the consumption demand to economic growth enlarged evidently. In the first half of 2007，incomes of the urban and rural residents all showed a momentum of rapid growth. The per capita disposable incomes of the residents in cities and towns reached 7052 yuan，actually rising 14.2% after allowing for the price rise and accelerating 4 percentage points over the same period of last year. The per capita cash income of the farmers amounted to 2111 yuan，increasing 314 yuan from a year ago，actually rising 13.3 %，with the growth rate being 1.4 percentage points higher than that of the same period last year. Fast growth of incomes of the residents gave an impetus to the growth of the consumption demand and thus stimulated the growth of the national economy.

(4) Growth of the nationwide financial revenues accelerated

According to the statistics of the Ministry of Finance，from January through June，the nationwide financial revenues amounted to 2611.784 billion yuan, rising 30.6% from a year ago，which accomplished 59.3% of the budget. Of this total，the financial revenue of the central treasury increased 32.6% over the previous year; and the local financial revenue grew 28.1% year on year.

(5) There was an obvious turnaround in supply and demand for main energy products, with the price rise falling back

In the first half of 2007，energy production maintained a rapid growth. From January to May，the aggregate energy production grew 10.1%, year on year; and the accumulative output of raw coal, crude oil and the generated energy grew a year-on-year 12.5%, 1.6% and 15.8%, respectively. Under the state regulation and guided by import and export policies, imports of the main energy products increased rapidly, with the exports showing an obvious decrease. From January to May, coal export dropped 27.5% from a year ago and the coal import grew 44%, year on year；import of crude oil mounted up 9.6% over the previous year；and the crude oil export reduced 36.6% from a year ago. In the first half of 2007, there was a balance between supply and demand as a whole on the domestic energy market. Growth of the energy prices in each of the months hit an all-time low since 2003.

2. Various macro regulation measures produced tangible results

In the first half of 2007，the national economy performed well as a whole, which resulted from the implementation of various macro regulation policies of the state. For instance:

In order to tackle the excess cash flow and the overly rapid asset price rise，the Central Bank raised the interest rates for three times running；heightened the deposit reserve fund ratio for five times; and enlarged the floating range of the Renminbi exchange rate. In order to facilitate the sound and orderly development of the securities market，tax regulation and control measures were enacted at the right time, thus curbing the irrational investment on the stock market.

In order to achieve equilibrium of balance of payments and reduce trade surplus，the state departments concerned successively implemented a series of macro regulation policies to encourage import and limit export, especially the export of the high-energy consumption and high-pollution products，adjusted the export tax refund policy to a large extent，and reduced the tax refund rates of part of the products and increased export tariffs of part of the products，which played a role in promoting import and decreasing export.

In order to earnestly carry out the strategic planning of saving energy and reducing pollution，the State Council set up the leading group for energy saving and pollution reduction work，reformed and improved energy saving supervision system，promulgated the Comprehensive Plan for Energy Saving and Pollution Reduction，and put forward 45 specific measures and 10 important projects as the guarantee. At the start of 2007，the Central Government earmarked a total of 6.3 billion yuan in terms of national debt and the central intra-budgetary investment as well as 5 billion yuan from the central financial budget and an added 10 billion yuan out of the central fund to support energy saving and pollution reduction.

In order to control the excessively fast increase of fixed asset investment，the state carried out the policy of exercising both protection and suppression，augmented the investment in agriculture and in relevant areas of the tertiary industry，strictly controlled the investment in industries of overproduction, high energy consumption and high pollutant dumping，and rigorously took the environmental protection standard as the prerequisite for approval and control over the investment. Efforts were intensified in supervising and handling the real estate investment and the market order to curb the excessively fast investment growth.

Various macro regulation measures proved highly successful. The economy witnessed a comprehensive sound development in the first half of 2007 and this result was closely related to the implementation of the macro regulation policies.

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^* This paper is the general report by the Institute of Market Economy of DRC on "Analysis of the Chinese Market Situation in the First Half of 2007 and Forecast on the Future Development"